Weekly Gold Report (October 22nd through October 26th)
Last week concluded another five days of mixed data that continues the keep everyone guessing. When it comes to the fundamental side of the current market, traders are left scratching their heads fairly regularly. Each week we have to keep in mind that the US FED has made it clear that they will continue to print US Dollars and purchase debt (QE) which should help global markets avoid total disaster. Much of the sharp rally in Gold prices from late September into early October were in anticipation of this announcement. But it should be noted that the FED’s balance sheet is at the lowest level since June 2011 which means the $40B per month in easing has not yet begun. Last week reported less than favorable earnings for quite a few big names in the US markets, which prompted a hefty correction in equities that wiped out a three day rally in one session.
Across the pond in Europe, there was early news in the week that Spain and Germany were finding common ground on a partial bailout to ease borrowing costs for Spains crippled economy. This news was followed by a two day meeting of EU officials which produced nothing new for the market to grab hold of. EU officials continued to give a bit of praise to Greece, and also kept up talks of a Euro area bank supervisor. Neither of these announcements sparked interest that lasted.
Lastly, China reported very important economic numbers last week, including GDP figures that suggested China’s economy was not as bad as some had expected. In fact the numbers were quite the opposite. But this turn of events also had very little, if any effect on global markets.
Last week’s fundamentals were very difficult to trade. I expect that this week traders will be closely watching this months FOMC announcement on Wednesday in the US. The question will be whether the FED will bring a supportive announcement to the market to offset last Fridays drubbing, or whether they will deliver a lukewarm statement while we wait for the Presidential elections to conclude. There is no telling what to expect. Aggressive traders will be positioning today and tomorrow, while the less aggressive will trade the news following the report.
While the fundamentals in the market were highly unreliable, the technicals in a market like Gold give traders something to think about early this week. If you reference the chart above, Gold Futures in December have been on a slide since the near $1800 top. The low prices from Friday and so far on Monday should catch the attention of technicians. Take notice of the intersection of the support trendline across the lows (arrow #1) and the prior ranges resistance (arrow #2). These two dominant trendlines meet at today’s low price, which has identified short term support. Equally as important is the technical indicator called a “Golden Cross” (arrow #3) where the 50 day moving average crossed over the 200 day moving average on the daily chart. Technicians typically use this as a bullish indicator in the markets.
It will be important to keep a watchful eye on earnings and any indication from the FOMC in the United States, but I think traders should pay more attention early in the week at the aforementioned technical indicators if they are trading Gold.
Good luck this week and as always, please feel free to call or email my office with any questions or comments regarding this piece. Also, please keep in mind that Long Leaf Trading is offering lowered commission rates on all new accounts opened in the month of October. This applies to all new accounts, whether Gold is the focus or not. Please contact Brian Booth directly by phone at (888) 272-6926 or by email at [email protected]
Thank you for your interest,
Senior Market Strategist